5: The True Cost of a Thing

The price of something does not always reflect its true cost, both to ourselves and to society. Through the eyes of Henry David Thoreau and a discussion of why I no longer shop at dollar stores, you’ll discover the true cost of a thing.

Photo by Lulu Lovering

You’ll learn:

Why Henry David Thoreau didn’t shop at dollar stores.

How Thoreau dealt with the age old challenge of not having a clue how to make a living.

How the cost of things can be measured in terms of life and freedom.

Why Thoreau went to Walden and what he learned about money.

What are the costs or externalities that society bears when we buy something.

The problem when companies don’t consider the entire lifecycles of their products.

The problem with plastic.

Why countries should trade for each other’s best goods, not their cheapest.

Summary Article

The True Cost of a Thing

When we buy something, there is always a price. The price we pay, however, does not always reflect the true cost of the item—both the cost to ourselves and the cost to society.

This week’s essay is about the cost to ourselves. Next week, I’ll address the cost to society.

Thoreau Knew The Cost

Henry David Thoreau wrote in Walden, “The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.”

What is the personal cost when we buy something? In the short run, the cost is the time expended earning the money to buy the item.

Yet, a dollar spent is a dollar that could have been saved. The cost of buying an item is not only the initial price paid and the time spent earning, but in the long-run the cost is the total appreciation and interest that could have been earned on that dollar had it been invested.

A dollar invested today that earns 5% annually would be worth $4.32 in thirty years. Perhaps that doesn’t seem like much, but a consistent pattern of investing a dollar instead of spending it, ultimately leads to the freedom to pursue whatever activity we choose without having to worry about earning money at all.

Time and Freedom

Thoreau recounts the story of a Native American who weaved a basket to sell to a lawyer, only to find the lawyer didn’t want to buy it. The basket weaver was disturbed by this, thinking that since he had done his part, the lawyer would certainly do his and buy the basket.

The lesson Thoreau took from this account is not to make things others are willing to buy.

“I too had woven a kind of basket of a delicate texture, but I had not made it worth any one’s while to buy them. Yet not the less, in my case, did I think it worth my while to weave them, and instead of studying how to make it worth men’s while to buy my baskets, I studied rather how to avoid the necessity of selling them.”

Henry David Thoreau, Walden

The personal cost to buy an item is always our time and freedom, including the freedom to pursue activities for which there might not be a market.

Necessities, Comforts and Luxuries

Thoreau understood the value of time and could not understand how people could waste away their lives to buy frivolities. Necessities yes. And comforts too. But he could not grasp why anyone would continue to slave away for nicer and nicer things, when the old things still served their intended purpose.

He writes, “Most men appear never to have considered what a house is, and are actually though needlessly poor all their lives because they think that they must have such a one as their neighbors have.”

Guilt

The opposite is also true. There are those who have saved, sacrificed and invested all of their lives, and have reaped the rewards of freedom and abundance. Yet, the habit of saving is so ingrained that they feel guilty spending on themselves.

In those cases, I say buy the new truck. Buy the camper. Take the grandkids to Hawaii.

Late in life, the true cost of a dream is no longer the time given up to fulfill it. Rather, spending on those dreams extends life and brings priceless memories.

Bonus Article

The High Cost of Cheap Imports

Last week, I wrote about how Americans’ desire to buy cheap clothing imported from China and other countries has had serious negative economic consequences for the U.S.

Not only have imports of cheap clothes contributed to 700,000 lost U.S. jobs in the textile industry over the past 20 years, according to the Bureau of Labor Statistics, but China has amassed $1.2 trillion of U.S. Treasury securities because they choose to invest many of the dollars they receive from selling us cheap goods here in the U.S.

There is an inflationary risk if China and other foreign nations ever decide to dump their U.S. Treasury holdings to buy additional U.S. resources such a land or other productive assets.

Foreign Trade Can Be Good and Bad

The message is not that trade with other countries is bad.

Trade with other countries is good as there are some things the U.S. is best-in-class at making and there are other manufactured goods where foreign countries are best-in-class.

Trade is bad when it becomes too lopsided or when the reason for importing an item is not its quality but its cheap price.

In 2013, according to the U.S. Census Bureau, the U.S. ran a $700 billion merchandise trade deficit, which means it imported $700 billion more in goods than it exported. That is 700 billion actual dollars that flowed into the hands of foreigners, many of which took those same dollars and bought U.S. government debt and other U.S. assets.

About one-third or $226 billion of that trade deficit was due to crude oil and other petroleum imports.

There is not much U.S. citizens can do about that other than drive less and drive more fuel efficient cars.

Cheap Consumer Good Imports

What your average American can do something about is the $530 billion of consumer goods the U.S. imports, which is $344 billion more than it exports.

Is the quality of foreign consumer goods that much better than U.S. made consumer goods? Are all foreign made consumer goods best-in-class?

Or do we import $344 billion more consumer goods, including clothing, shoes, furniture, and sports/camping gear than we export because foreign consumer goods are cheaper?

Why are they cheaper?

Are they less expensive because other countries are more adept at automating manufacturing processes than the U.S., allowing them to be more productive? I doubt it as much of the factory automation equipment and technology is actually made and developed here in the U.S. and then exported overseas.

Consumer goods imports are cheaper because overseas labor costs are lower. Overseas labor costs are lower because standards of living in many developing countries are lower. In addition, many foreign manufacturers don’t pay a living wage to their employees.

It doesn’t have to be this way. No one is making us buy cheap foreign goods. We have a choice of what we buy.

More Jobs

Think of how many U.S. jobs would be created if U.S. citizens chose to annually shift $200 to $300 billion of their consumer goods purchases from foreign companies to U.S. manufacturers and workers? If $100 billion of that shift went toward hiring American workers at $45,000 a year, it would create 2.2 million new jobs.

Granted, your average U.S. citizen would have to buy less things since those goods would be more expensive because the cost of living and wages are higher here.

Trade For The Best, Not The Cheapest

This is not about economic nationalism.

This is about allowing countries to be self-sufficient. It is about providing opportunities and jobs for workers of all skill levels. It is about encouraging countries to trade for each other’s best goods, not their cheapest.

Next time you purchase an item, consider whether you are buying it because of its high quality or because it is cheap.